Islamic Finance

Azentio’s Path acquisition puts Islamic banking software under spotlight

The acquisition of a leading Islamic fintech by a major software company marks a significant shift in the technology industry towards recognising the importance of faith-based financial services.

Azentio Software, which is owned by funds advised by private equity firm Apax Partners, announced last week that it will acquire Path Solutions, the Kuwait-headquartered Shariah financial solutions provider to some 150 of the roughly 250 Islamic banks worldwide.

The transaction, for an undisclosed amount, is currently awaiting regulatory approval. Once it is complete, it will give Singapore-based Azentio a deeper reach inside the Islamic financial market through Path.

“I think when a major private equity firm decides they want [Islamic finance] to be part of their portfolio it is based on a lot of research, it is an admission that this industry is very different and has its own specific needs,” Path’s chairperson and chief executive, Mohammed Kateeb, told Salaam Gateway.

“The traditional way of doing business in the financial industry and working in isolated islands is not going to work any more.”

Path, which was founded nearly 30 years ago, will gain from the deal through additional investment and the clout of a new parent with around 2,000 staff.

“We realise that the financial industry is going through a revolution, and the opportunities are ahead of us. We realise we need a lot of additional resources financially, and other types of resources, and I believe this acquisition offers us all that and will enable us to be a major player in the industry,” Kateeb added.

Azentio was formed earlier this year from the sale of 3i Infotech’s software business to Apax’s funds for about $135 million. With over 600 customers in banking and insurance, it is focusing on expansion across Southeast Asia, India, the Middle East and Africa, and it has a big footprint in Muslim-majority countries.

The Path deal is Azentio’s third acquisition, following the purchase of two insurance software businesses in recent months. It was attracted to the Islamic banking solutions specialist due to its strength in Shariah-compliant lending technology and anti-money laundering and asset management solutions, said Anthony Kinnear, Azentio’s chief executive.

“Path is a world-leader in Islamic financial technology and core banking software. From our perspective, that’s a brilliant fit; there’s very little overlap,” he told Salaam Gateway. 

“It strengthens what we already had in Islamic banking software and gives us a leadership position. It also strengthens our core banking platform as well. If you look at what we can offer all our banking and financial services customers, we can offer them a much broader set of software and solutions now.”

It also helps that Path is the only software provider certified by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI). This certification is required by Islamic finance regulators in countries such as Bahrain, Nigeria and Qatar, which makes Path the only option for institutions in these countries that wish to be certified out of the box.

Beyond the certification, it would not be an easy task for agnostic financial solutions companies like Azentio to tap into the Islamic finance markets without investing in boosting their competence in the industry.

In-depth Islamic products require complicated profit calculations that conventional banking does not have to do, since it is based on interest and uses very simple percentages that are applied as formulas to calculate interest rates. Islamic finance, on the other hand, is largely based on profit and the software used to work this out needs to be able to deal with highly complex calculations with profit distribution and pool management, said Kateeb.

As a financial software company with a strategy of building its business south and east of the Suez, rather than fighting for share in North America and Europe, Azentio’s latest acquisition came onto its radar after the two companies found themselves competing for the same contracts.

“Many times they would win pitches, and other times we would win. We were always aware of Path, and they clearly had a very strong reputation,” said Kinnear. 

Now Azentio plans to "invest very heavily” in the digital transformation of Islamic banks and institutions. 

“I’m trying to deploy a strategy whereby we play by our strengths. We will be doubling down in the areas where we think we can win in the market—lending, AML, Islamic banking and financial services, insurance and digitalisation generally,” said Kinnear.

“The fact that they are a leader in Islamic banking and finance is an incredibly strong advantage for us. It makes us the leading player in that segment now.”

*Corrections: Para 6, the number of staff at Path is corrected from 7,000 to 2,000. Para 14, "product distribution" is corrected to "profit distribution".

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